Going for a mortgage? Here are the home loan documents you might need

Too bad buying a house isn’t as easy as looking at home décor inspiration online. Not only do you need to find the perfect digs, you have to figure out how you’re going to pay for it.

Depending on your current situation, you may decide to get a mortgage. When you apply for a home loan or start the mortgage pre-approval or loan estimate process, you will need a range of paperwork, likely including your tax returns, paystubs, and bank statements.

An important part of any home loan application process is providing proof of income and employment. This authentication allows a lender to determine that you have a job and make enough to cover the monthly cost of your mortgage.

Proof of W-2 wage earnings: Admittedly, the mortgage process is easiest for workers who earn a paycheck from one employer with little variation, deductions, or bonuses. If you fall into this category, you can provide your two most recent paystubs and W-2 statements for the past year. But, if you earn overtime, bonus, or shift differentials, your most recent personal end-of-year payroll stub might also be handy.

Proof of self-employed, freelancer, and independent contractor income: Your lender may want more documentation if you earn self-employment income, contract income, or revenue from a business you own, including an S-corporation or partnership. You could provide a year-to-date profit and loss statement and gather two years of records, including the 1099 statements you used to file your federal tax return. You can also include your K-1 in the case of part ownership in an S-corporation or partnership.

Proof of real estate income: You’ll likely need to document any rental income if you’re using it to qualify for a mortgage. So, you may need most recent annual personal tax return and a signed lease on hand. This documentation is especially relevant if you did not claim rental income on your most recent tax return.

Tax returns: Lenders want to confirm you’ve paid your taxes, so you’ll need to provide two years’ worth of federal tax returns. Tax returns also help to explain and establish the complete financial picture of your income.

Social Security number: This identification number will be used to check your credit score and your credit report.

In the loan application or pre-approval process, an assessment of your assets is crucial to make sure you can cover the cost of your mortgage loan and closing costs. (These expenses, which are usually between 2 and 5% of your home’s price, can catch you off guard if you’re not careful.)

Bank statements: Have on hand at least two months' worth of statements, including the full transaction history and current balances.

Retirement and brokerage account statements: If you’re using these accounts to qualify for a mortgage loan, the lender may require 60 days of statements from Individual Retirement Accounts (IRAs), 401(k)s, 403(b)s, 529(s), other investment accounts, and Certificates of Deposit (CDs), for example. With a retirement account, showing your last quarterly statement with your vested balance may suffice.

On the flip side of income and assets is your monthly debts. Together, they are used to calculate your debt-to-income ratio (DTI), a critical standard that every lender reviews as part of your mortgage application.

Your DTI can be calculated by adding up your monthly debt and dividing that by your monthly income (money you earn before taxes). Different lenders may have different DTI requirements. For instance, at Ally, we can approve home loans for borrowers with up to 50% DTI. But note: The lower your DTI, the more financing options will be available to you.

Monthly debt payments: You will likely need the most recent statements for any outstanding debt you have — student loan, car loan, credit-card bills, personal loan, home equity line of credit, etc.

Real estate debt: If you have a mortgage on your current property or have a mortgage on rental property, be ready to potentially provide your most recent statement. Check that the paperwork includes your loan number, monthly payment, loan balance, and the lender’s name and address along with the declaration page of the insurance policy.

Once you’ve detailed your income, assets, and debts, you’re in the mortgage documents homestretch. But a lender might need a few more piece of paperwork. Be prepared to provide proof of the following, so there are no surprises come loan application time:

Rent: If you’re a renter, you may need proof of payment for the past 12 months and the contact information of your landlords for the past two years.

Divorce: In this case, you’ll likely need a full copy of your divorce decree to verify any recurring payments (including alimony) that are part of your ongoing debts.

Bankruptcy and foreclosure: If you have any recent derogatory events on your credit report, especially bankruptcies, foreclosures, and short sales, the lender may need release documents to confirm the date of loan settlement.

If you’re a first-time homebuyer, looking to refinance your home — or even if you’re an expert and have closed multiple times before — we know collecting all of these home loan documents can be daunting. Which is why we’re here as your ally. Our technology and digital-first approach streamlines the mortgage application process, helping to make it faster and simpler than ever before.